South Korea unexpectedly cuts rates by 25 basis points — first back-to-back cuts since 2009

South Korea on Thursday cut its benchmark interest rate by 25 basis points in a surprise move, as the country strives to boost its economy amid tepid growth.

This was the first time the BOK enacted two back-to-back cuts since 2009. It had cut rates by 25 bps in its last meeting in October. Economists polled by Reuters had estimated the bank to hold rates at 3.25%.

The rate cut follows a weaker-than-expected GDP reading in the third quarter. GDP expanded by 1.5% year on year, below the 2% expected by economists polled by Reuters.

The BOK on Thursday lowered its GDP outlook to 2.2% for 2024, down from 2.4% forecast in August. The full-year growth outlook for 2025 was cut to 1.9% from 2.1%.

In its statement, the BOK said while inflation had stabilized, the downward pressure on the economy had intensified.

“The Board, therefore, judged that it is appropriate to further cut the Base Rate and mitigate downside risks to the economy,” the central bank said.

Inflation in the country has substantially slowed, with the October reading of 1.3% marking the lowest rate of inflation since February 2021.

Before the decision, several economists had forecast the BOK would pause rate cuts due to the weakness in the South Korean won, which has been depreciating over the past couple of months and hit to a two-year low of 1,411.31 on Nov. 14.

Following BOK’s October meeting, Governor Rhee Chang-yong reportedly said the rapid depreciation of the currency against the U.S. dollar would be a critical factor in determining the pace of rate cuts in the months to come.

“The Korean won is losing against the U.S. dollar at a pace far faster and a level far lower than we would like,” Rhee said, according to the Korea Times.

The South Korean weakened 0.3% to trade at 1,392.17 against the U.S. dollar after the decision, while the Kospi was up 0.29%

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